Estate planning becomes more complex when the estate’s owner has a personal injury settlement to add to the mix because this increases the individual’s wealth and the overall value of the estate. Whether the settlement is pending and the case is still open, or the settlement has been completed and the money is in the bank, these realities have a direct impact on an individual’s estate planning.
Understanding the Goal of Estate Planning
The primary goal of estate planning is determining how a person chooses to allocate financial assets after dying. A secondary goal, especially with larger estates, is protecting the money from estate taxes. For most people, the money in an estate comes from individual investments and work. When someone receives a personal injury settlement, that amount can increase quickly and change how the individual plans for the estate.
Taxes Change After a Settlement
The federal government charges taxes on estates, but only after the estate reaches $5.45 million in value. Before that, the estate is exempt from federal taxes. Many states have similar rules. When someone receives a personal injury settlement, the estate can quickly exceed that amount. The estate plan should get adjusted to provide protection against estate taxes. Often, using a trust can create this protection against state and federal estate taxes.
Calculating Medical Expenses
While personal injury settlements often leave some money in the bank, especially if the attorney pushes for punitive damages, the main purpose of the settlement is to take care of medical needs as the person heals. Sometimes, medical problems can pop up after an injury that were not anticipated early on. For example, if the person needs chiropractic care, he or she may have latent problems that develop years after the initial accident. Before placing the settlement into the overall estate, the individual needs to consider all potential medical expenses. Keeping money available to meet those needs ensures the injured party can heal and have financial support for medical needs in the future. Additionally, the individual needs to be careful not to over-report worth since some of the settlement money will get used for medical needs. This is where a personal injury lawyer or an estate planning lawyer can help.
The Need for Proper Documentation
Throughout the process, both when receiving the settlement and when planning for the estate, proper documentation is essential. Knowing what money is coming in, what it will be used for, and what the individual’s medical needs are, helps appropriately plan for the estate and the settlement.
A Sound Investment Plan Is Needed
Finally, after all of the medical expenses are considered, the family should work with someone to invest any remaining money from the personal injury settlement. Keeping the money accessible is important because of the risk of unanticipated medical needs. However, investing the money to allow it to grow is beneficial for the individual’s financial security and estate planning needs. By investing wisely, the award recipient can increase the value of the settlement over time, growing the estate and adding more money to bank accounts to cover potential medical expenses.
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